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Pacific Financial Corp Earns $3.4 Million, or $0.32 per Diluted Share, for 4Q19, up 6% from 4Q18; Net Income Increases 21% to a Record $13.8 Million, or $1.29 per Diluted Share, for the Full Year of 2019 Declares Regular Quarterly Cash Dividend of $0.11 per Share

Company Release - 1/28/2020 9:00 AM ET

ABERDEEN, Wash., Jan. 28, 2020 (GLOBE NEWSWIRE) -- Pacific Financial Corporation (OTCQX: PFLC), the holding company (the “Company”) for Bank of the Pacific (the “Bank”), today reported fourth quarter net income increased 6% to $3.4 million, or $0.32 per diluted share, compared to $3.2 million, or $0.30 per diluted share, for the fourth quarter of 2018.  Net income for the third quarter of 2019 was $3.8 million, or $0.35 per diluted share.  For the year ended December 31, 2019, net income was $13.8 million, or $1.29 per diluted share, an increase of 21% from $11.3 million, or $1.06 per diluted share, for 2018.

The Board of Directors of Pacific Financial declared a quarterly cash dividend of $0.11 per share on January 22, 2020.  The dividend will be payable on February 26, 2020, to shareholders of record at close of business day on February 12, 2020.

“We generated record profits for the year ended December 31, 2019, highlighted by a strong net interest margin of 4.58%, and a 39% increase in noninterest income from 2018, which was primarily driven by an increase in mortgage lending activity,” said Denise Portmann, President and Chief Executive Officer.  “Credit quality remains solid, with nonperforming loans to total loans at 0.15%, and adversely classified loans remaining at relatively low levels.  Our risk management protocols guide the growth of our loan portfolio as we carefully monitor loan concentrations to stay within regulatory guidelines, particularly in commercial real estate.”  Fourth quarter 2019 performance metrics remained above average with an annualized return on average assets (“ROAA”) at 1.45% and an annualized return on average equity (“ROAE”) of 13.01%.

“Our recent expansion along the I-5 corridor in the growing area of Eugene was a logical progressive step for us,” said Portmann.  “With our team of highly experienced lenders, we look forward to developing a solid customer base initially focusing on commercial lending. Operating expenses incurred during the year reflect the investments associated with the expansion of our franchise operations into Eugene and the hiring of key talent.  We will continue to invest in our future and look forward to continuing to deliver value to each of our customers and shareholders.”

Fourth Quarter 2019 Financial Highlights (as of, or for the period ended December 31, 2019, except as noted):

  • Diluted earnings per share were $0.32, compared to $0.30 for the fourth quarter of 2018, and $0.35 for the third quarter of 2019.
  • ROAA was 1.45%, compared to 1.39% for the fourth quarter a year ago.  Industry peer ROAA was 1.02%.  ROAE was 13.01%, compared to 13.76% for the fourth quarter of 2018.  Industry peer ROAE was 9.66%.  [Industry peers are the 418 banks that make up the SNL Microcap U.S. Bank Index, at September 30, 2019.]
  • Net interest margin was 4.31% for the fourth quarter, compared to 4.58% for the fourth quarter 2018, and 4.57% for the third quarter of 2019.  Industry peer NIM was 3.67%.  [Industry peers are the 418 banks that comprised the SNL Microcap U.S. Bank Index, at September 30, 2019.]  Net interest margin for the full year was 4.58% compared to 4.52% for 2018.
  • Noninterest income increased 61%, or $1.5 million, to $3.9 million in the fourth quarter, compared to $2.4 million in the fourth quarter a year ago, and declined 7% from $4.2 million on a linked quarter basis.  For the full year, noninterest income increased 39% to $13.9 million from $10.0 million for 2018.
  • Total assets increased $21.5 million to $929.4 million from $907.9 million a year earlier.
  • Total deposits were $798.6 million, compared to $783.5 million at December 31, 2018 and $816.1 million at September 30, 2019.  The decline in deposits on a linked quarter basis was due to seasonal deposit outflow and an intentional roll-off of $4.8 million of brokered deposits.  Noninterest-bearing demand deposits represented 31% of total deposits, at December 31, 2019.
  • Gross loans were $685.3 million at December 31, 2019, compared to $704.1 million a year ago, and $683.8 million at September 30, 2019.  This includes a strategic reduction of $12.1 million in indirect consumer loans to finance luxury and classic cars year-over-year.
  • Asset quality remains solid with nonperforming assets to total assets at 0.11% at December 31, 2019.
  • The allowance for loan losses was 1.31% of gross loans outstanding at December 31, 2019.

Results of Operations

Net interest income was $9.5 million for the fourth quarter of 2019, compared to $9.8 million for the fourth quarter a year ago, and $9.8 million for third quarter of 2019.  The decline in net interest income from a year ago, and from the preceding quarter, was largely due to a decrease in earning asset yields, as interest rates on adjustable rate loans and investments decreased following decreases in short term rates of 50 basis points and 25 points during the quarters ending September 30, 2019 and December 31, 2019, respectively.  The yield on interest earning assets was 4.64% for the fourth quarter of 2019, compared to 4.90% for the fourth quarter a year ago and 4.91% on a linked quarter basis.  The cost of funds remained relatively steady at 0.35% for the fourth quarter of 2019, compared to 0.34% for the fourth quarter a year ago, and 0.35% for the third quarter of 2019.

For the full year 2019, net interest income grew 3%, to $38.6 million compared to $37.5 million for 2018.  This increase was largely due to year-over-year increases in yields on loans and other interest earning assets, which were partially offset by a four basis points increase in cost of funds to 0.36% for 2019, from 0.32% for 2018.

The net interest margin was 4.31% for the fourth quarter of 2019, compared to 4.58% for the fourth quarter of 2018, and 4.57% for the third quarter of 2019.  The compression in the net interest margin from the preceding quarter and year-over-year, was primarily due to the impact of decreasing market interest rates, including fed funds and prime interest rates.  For the full year 2019, the net interest margin expanded six basis points to 4.58% from 4.52% for 2018.

Noninterest income increased 61%, or $1.5 million, to $3.9 million for the fourth quarter of 2019, compared to $2.4 million for the fourth quarter of 2018, and declined from $4.2 million for the third quarter of 2019.  The decline in noninterest income from the preceding quarter, was primarily due to the decrease in the gain on sale of loans during the fourth quarter, and from recognition of income from an unexpected bank-owned life insurance event in the third quarter.  The increase in noninterest income year-over-year was primarily due to increases in gains on sale of loans and higher fee income.  For the full year, noninterest income increased 39% to $13.9 million, compared to $10.0 million for 2018.

“Mortgage banking production remained robust in this continued low rate environment.  This loan activity has increased contributions to noninterest income throughout the year,” added Portmann.  “In addition, we continue to benefit from initiatives which have improved workflow efficiencies, revenue and cost management.”

Noninterest expense increased 10% to $9.1 million, compared to $8.3 million in the fourth quarter of 2018, and declined 3% from $9.4 million on a linked quarter basis.  The increase in operating expenses year-over-year, was primarily due to higher compensation and commissions associated with the growth in residential mortgage production, the investment made in expanding operations down the I-5 corridor into the Eugene market, professional fees and state and local taxes.  These costs were partially offset by a decline in occupancy expenses as well as credits from the FDIC insurance assessment.  For the full year 2019, noninterest expense grew 5% to $35.6 million compared to $33.8 million for 2018.

The efficiency ratio was 67.91% for the fourth quarter of 2019, compared to 67.58% for the fourth quarter of 2018, and 67.03% for the third quarter of 2019.  The efficiency ratio improved to 67.68% for the year ended December 31, 2019, compared to 71.14% for the year ended December 31, 2018.

Balance Sheet Review

Total assets increased $21.5 million to $929.4 million at December 31, 2019, compared to $907.9 million at December 31, 2018, and decreased $15.8 million from $945.2 million at September 30, 2019.

Investment securities declined 16% to $103.2 million, at December 31, 2019, compared to $122.6 million at December 31, 2018, primarily as a result of maturities, payments and sales within the portfolio.  During the fourth quarter, the Bank re-invested a portion of its federal funds sold balances into higher yielding investments; as a result, the portfolio grew 4% compared to the preceding quarter.  The portfolio is comprised primarily of amortizing U.S. agency collateralized mortgage, mortgage-backed securities and municipal securities.

“Liquidity within the company remains strong as a result of existing levels of combined cash equivalents, investment securities, unused borrowing capacity and strong deposit growth,” said Carla Tucker, EVP and Chief Financial Officer.  In addition to cash equivalent assets of $81.2 million, the Bank had established borrowing lines with the Federal Home Loan Bank of Des Moines of $181.0 million, with $3.2 million outstanding, at December 31, 2019.  The Bank’s borrowing facility with the FHLB is subject to collateral and stock ownership requirements.  The Bank also has available a discount window primary credit line with the Federal Reserve Bank of San Francisco of approximately $53.0 million, subject to collateral requirements, and $16.0 million from correspondent banks, with no balance outstanding on any of these facilities.

The loan portfolio continues to remain well-diversified with loans originating predominately within the Western Washington and Oregon markets.  Gross loan balances were $685.3 million at December 31, 2019, compared to $704.1 million at December 31, 2018.  Decreases during the year occurred in consumer loans, and commercial and agricultural loans and commercial real estate loans.  To manage risk, the Company oversees new loan origination volume and current loan balance using concentration limits that establish maximum exposure levels by designated industry segment, real estate product types, geography and single borrower limits.  As of December 31, 2019, the consumer loan portfolio included $48.2 million in indirect consumer loans to finance luxury and classic cars, a decline of $12.1 million from $60.3 million a year earlier, and down $3.2 million compared to $51.4 million at September 30, 2019.  “As part of our strategic plan, we have been limiting our concentrations in indirect consumer loans to finance luxury and classic cars,” said Portmann.

Deposit growth continues to be strong. Excluding brokered deposits, total deposits increased by $36.3 million or 4.8%.  Including brokered deposits, total deposits increased $15.1 million, or 2%, to $798.6 million at December 31, 2019, compared to $783.5 million at December 31, 2018.  This increase included a planned roll-off of $21.2 million in brokered CDs that were acquired during the latter part of 2015 and 2016.  Interest-bearing demand deposits grew by $37.0 million, or 19%, year-over-year.  Noninterest-bearing deposits accounted for 31% of total deposits, at December 31, 2019.

Capital ratios of Pacific Financial Corporation, and its subsidiary Bank of the Pacific, continue to exceed the regulatory requirements for the well-capitalized thresholds.  At December 31, 2019, Pacific Financial Corporation’s leverage ratio was 11.17% and the total risk-based capital ratio was 14.72%.  The total risk-based capital ratios of the Company include $13.4 million of junior subordinated debentures, all of which qualified as Tier 1 capital under guidance issued by the Federal Reserve.  As provided in the Dodd-Frank Act, the Company expects to continue to rely on these junior subordinated debentures as part of its regulatory capital.

Asset Quality

Asset quality remained solid with nonperforming assets to total assets at 0.11%, at December 31, 2019, and at September 30, 2019, compared to 0.12% at December 31, 2018.  Net charge offs remained at low levels and were $24,000 for the fourth quarter and $56,000 for the full year of 2019.  Adversely classified loans to total gross loans increased to 1.71% at the end of the current quarter, compared to 1.10% a year earlier, and 1.17% on a linked quarter basis.  This increase was primarily related to the adverse classification of five relationships totaling $4.1 million.  Two relationships were related to the dairy industry which has struggled in recent years with historically low milk prices while the other three relationships suffered from financial setbacks unique to their own business rather than as a result the broader economic environment.

The allowance for loan losses to gross loans stood at 1.31%, at December 31, 2019, compared to 1.29% a year ago, and 1.32% at September 30, 2019.  No provision for loan losses was incurred in the current quarter, linked quarter or the like quarter a year ago.  The overall risk profile of the loan portfolio continues to be conservative, demonstrating the solid credit risk management framework in place.

Income Tax Provision

Income tax provision was $836,000 for the fourth quarter of 2019, compared to $719,000 for the fourth quarter of 2018, and $859,000 for the third quarter of 2019.  The effective tax rate for the fourth quarter of 2019 was 19.5%, compared to 18.1% for the fourth quarter of 2018, and 18.6% for the third quarter of 2019.  Income tax expense for the full year of 2019 was $3.2 million, compared to $2.4 million for 2018.  The effective tax rates were 19.0%, and 17.3% for the years ending December 31, 2019 and December 31, 2018, respectively.  A planned reduction in nontaxable municipal securities during 2019, a decrease in tax credit for stock awards and an increase in Oregon tax expenses contributed to the increase in the effective tax rate.  The remaining tax provision increase can be attributed to growth in pre-tax income.  In addition to federal corporate income tax, Pacific Financial also pays Oregon corporate income tax and Washington Business and Occupation tax on revenues. 

Balance Sheet Overview
(Unaudited)
                
   Dec 31,
2019
 Sept 30,
2019
 $
Change
 %
Change
 Dec 31,
2018
 $ Change % Change
Assets: (Dollars in thousands, except per share data)
 Cash on hand and in banks$36,723 $48,910 $(12,187) -25%$22,188 $14,535  66%
 Interest bearing deposits 3,250  3,250  -  0% 3,250  -  0%
 Federal funds sold 41,210  36,876  4,334  12% -  41,210  100%
 Investment securities 103,216  99,222  3,994  4% 122,610  (19,394) -16%
 Loans held-for-sale 10,108  23,542  (13,434) -57% 6,204  3,904  63%
 Loans, net of deferred fees 684,438  682,832  1,606  0% 703,103  (18,665) -3%
 Allowance for loan losses (8,993) (9,017) 24  0% (9,049) 56  -1%
 Net loans 675,445  673,815  1,630  0% 694,054  (18,609) -3%
 Federal Home Loan Bank and Pacific Coast                      
 Bankers' Bank stock, at cost 2,217  2,218  (1) 0% 2,407  (190) -8%
 Other assets 57,246  57,372  (126) 0% 57,216  30  0%
 Total assets$929,415 $945,205 $(15,790) -2%$907,929 $21,486  2%
                
Liabilities and Shareholders' Equity:              
 Total deposits$798,638 $816,090 $(17,452) -2%$783,549 $15,089  2%
 Borrowings 16,606  16,644  (38) 0% 21,756  (5,150) -24%
 Accrued interest payable and other liabilities 8,878  9,000  (122) -1% 10,141  (1,263) -12%
 Shareholders' equity 105,293  103,471  1,822  2% 92,483  12,810  14%
 Total liabilities and shareholders' equity$929,415 $945,205 $(15,790) -2%$907,929 $21,486  2%
                
Common Stock Shares Outstanding 10,632,058  10,608,558  23,500  0% 10,568,720  63,338  1%
                
Book value per common share (1)$9.90 $9.75 $0.15  2%$8.75 $1.15  13%
Tangible book value per common share (2)$8.64 $8.48 $0.16  2%$7.47 $1.17  16%
                    
                    
Gross loans to deposits ratio 85.7% 83.7% 2.0%   89.7% -4.0%  
                
(1) Book value per common share is calculated as the total common shareholders' equity divided by the period ending number of common stock shares
  outstanding.
(2) Tangible book value per common share is calculated as the total common shareholders' equity less total intangible assets and liabilities, divided by the period
  ending number of common stock shares outstanding.


Income Statement Overview
(Unaudited)
                
   For the Three Months Ended,
   Dec 31,
2019
 Sept 30,
2019
 $
Change
 %
Change
 Dec 31,
2018
 $ Change % Change
   (Dollars in thousands, except per share data)
Interest and dividend income$10,187 $10,563 $(376) -4%$10,519 $(332) -3%
Interest expense 730  721  9  1% 700  30  4%
 Net interest income 9,457  9,842  (385) -4% 9,819  (362) -4%
Loan loss provision -  -  -  0% -  -  0%
Noninterest income 3,887  4,167  (280) -7% 2,409  1,478  61%
Noninterest expense 9,062  9,390  (328) -3% 8,264  798  10%
Income before income taxes 4,282  4,619  (337) -7% 3,964  318  8%
Income tax expense 836  859  (23) -3% 719  117  16%
 Net Income$3,446 $3,760 $(314) -8%$3,245 $201  6%
                
Average common shares outstanding - basic 10,626,443  10,595,992  30,451  0% 10,565,595  60,848  1%
Average common shares outstanding - diluted 10,664,213  10,669,761  (5,548) 0% 10,673,908  (9,695) 0%
                
Income per common share              
 Basic$0.32 $0.35 $(0.03) -9%$0.31 $0.01  3%
 Diluted$0.32 $0.35 $(0.03) -9%$0.30 $0.02  7%
                
Effective tax rate 19.5% 18.6% 0.9%   18.1% 1.4%  
                
   For the Year Ended,      
   Dec 31,

2019
 Dec 31,

2018
 $

Change
 %

Change
      
   (Dollars in thousands, except per share data)      
Interest and dividend income$41,570 $40,060 $1,510  4%      
Interest expense 2,928  2,590  338  13%      
 Net interest income 38,642  37,470  1,172  3%      
Loan loss provision -  -  -  0%      
Noninterest income 13,895  10,031  3,864  39%      
Noninterest expense 35,556  33,793  1,763  5%      
Income before income taxes 16,981  13,708  3,273  24%      
Income tax expense 3,223  2,378  845  36%      
 Net Income$13,758 $11,330 $2,428  21%      
                
Average common shares outstanding - basic 10,596,776  10,551,174  45,602  0%      
Average common shares outstanding - diluted 10,652,126  10,673,393  (21,267) 0%      
                
Income per common share              
 Basic$1.30 $1.07 $0.23  21%      
 Diluted$1.29 $1.06 $0.23  22%      
                
Effective tax rate 19.0% 17.3% 1.7%        


Noninterest Income
(Unaudited)
   For the Three Months Ended,
   Dec 31,
2019
 Sept 30,
2019
 $
Change
 %
Change
 Dec 31,
2018
 $ Change % Change
   (Dollars in thousands)
Service charges on deposits$527$493$34  7%$507$20  4%
Gain on sale of loans, net 2,212 2,353 (141) -6% 941 1,271  135%
Gain on sale of securities available for sale, net - - -  0% - -  0%
Earnings on bank owned life insurance 119 333 (214) -64% 111 8  7%
Other noninterest income              
 Fee income 992 936 56  6% 811 181  22%
 Other 37 52 (15) -29% 39 (2) -5%
Total noninterest income$3,887$4,167$(280) -7%$2,409$1,478  61%
                
                
   For the Year Ended,      
   Dec 31,
2019
 Dec 31,
2018
 $
Change
 %
Change
      
   (Dollars in thousands)      
Service charges on deposits$2,055$2,034$21  1%      
Gain on sale of loans, net 7,204 4,103 3,101  76%      
Gain on sale of securities available for sale, net 102 - 102  100%      
Earnings on bank owned life insurance 667 432 235  54%      
Other noninterest income              
 Fee income 3,641 3,331 310  9%      
 Other 226 131 95  73%      
Total noninterest income$13,895$10,031$3,864  39%      


Noninterest Expense
(Unaudited)
                
   For the Three Months Ended,
   Dec 31,
2019
 Sept 30,
2019
 $
Change
 %
Change
 Dec 31,
2018
 $ Change % Change
   (Dollars in thousands)
Salaries and employee benefits$5,726$6,058$(332) -5%$5,186 $540  10%
Occupancy 529 584 (55) -9% 606  (77) -13%
Equipment 275 251 24  10% 246  29  12%
Data processing 781 737 44  6% 740  41  6%
Professional services 389 376 13  3% 193  196  102%
State and local taxes 158 136 22  16% (15) 173  -1153%
FDIC and State assessments 8 50 (42) -84% 73  (65) -89%
Other noninterest expense:              
 Director fees 75 67 8  12% 67  8  12%
 Communication 76 74 2  3% 74  2  3%
 Advertising 78 70 8  11% 95  (17) -18%
 Professional liability insurance 54 54 -  0% 51  3  6%
 Amortization 108 114 (6) -5% 88  20  23%
 Other 805 819 (14) -2% 860  (55) -6%
Total noninterest expense$9,062$9,390$(328) -3%$8,264 $798  10%
                
                
   For the Year Ended,      
   Dec 31,
2019
 Dec 31,
2018
 $
Change
 %
Change
      
   (Dollars in thousands)      
Salaries and employee benefits$22,691$21,265$1,426  7%      
Occupancy 2,125 2,207 (82) -4%      
Equipment 1,009 1,087 (78) -7%      
Data processing 2,912 2,862 50  2%      
Professional services 1,436 756 680  90%      
Other real estate owned operating costs - 6 (6) -100%      
State and local taxes 515 360 155  43%      
FDIC and State assessments 135 393 (258) -66%      
Other noninterest expense:              
 Director fees 274 264 10  4%      
 Communication 297 303 (6) -2%      
 Advertising 304 341 (37) -11%      
 Professional liability insurance 207 193 14  7%      
 Amortization 414 374 40  11%      
 Other 3,237 3,382 (145) -4%      
Total noninterest expense$35,556$33,793$1,763  5%      


Financial Performance Overview
(Unaudited)
           
  For the Three Months Ended
  Dec 31,
2019
 Sept 30,
2019
 Change Dec 31,
2018
 Change
Performance Ratios         
Return on average assets, annualized1.45% 1.61% (0.16) 1.39% 0.06 
Return on average equity, annualized13.01% 14.52% (1.51) 13.76% (0.75)
Efficiency ratio (1)67.91% 67.03% 0.88  67.58% 0.33 
           
(1) Non-interest expense divided by net interest income plus noninterest income.        
           
           
  For the Year Ended,    
  Dec 31,
2019
 Dec 31,
2018
 Change    
Performance Ratios         
Return on average assets, annualized1.50% 1.26% 0.24     
Return on average equity, annualized13.70% 12.63% 1.07     
Efficiency ratio (1)67.68% 71.14% (3.46)    
           
(1) Non-interest expense divided by net interest income plus noninterest income.        

LIQUIDITY

Cash and Cash Equivalents and Investment Securities
(Unaudited)
    Dec 31,
2019
 % of
Total
 Sept 30,
2019
 % of
Total
 $
Change
 %
Change
 Dec 31,
2018
 Total $
Change
 %
Change
    (Dollars in thousands)
Cash on hand and in banks$12,264 7%$21,517 11%$(9,253) -43%$15,899 11%$(3,635) -23%
Interest bearing deposits 24,458 13% 27,393 15% (2,935) -11% 6,289 4% 18,169  289%
Other interest earning deposits 3,250 2% 3,250 2% -  0% 3,250 2% -  0%
Federal funds sold 41,210 22% 36,876 20% 4,334  12% - 0% 41,210  100%
 Total  81,182 44% 89,036 48% (7,854) -9% 25,438 17% 55,744  219%
                       
Investment securities:                    
 Collateralized mortgage obligations 45,141 25% 43,805 23% 1,336  3% 40,424 28% 4,717  12%
 Mortgage backed securities 18,579 10% 20,457 11% (1,878) -9% 22,393 15% (3,814) -17%
 U.S. Government and agency securities 484 0% 501 0% (17) -3% 4,125 3% (3,641) -88%
 Municipal securities 36,925 20% 32,378 17% 4,547  14% 54,649 36% (17,724) -32%
 Corporate debt securities 2,004 1% 1,999 1% 5  0% 959 1% 1,045  109%
 Equity securities 84 0% 82 0% 2  2% 60 0% 24  40%
 Total 103,217 56% 99,222 52% 3,995  4% 122,610 83% (19,393) -16%
Total cash equivalents and investment securities$184,399 100%$188,258 100%$(3,859) -2%$148,048 100%$36,351  25%
                       
Total cash equivalents and investment securities                    
 as a percent of total assets   20%   20%       14%    

LOANS

Loans by Category
(Unaudited)
                      
   Dec 31,  2019 % of Gross Loans Sept 30,
2019
 % of
Gross
Loans
 $  Change %  Change Dec 31,
2018
 % of
Gross
Loans
 $
Change
 %
Change
   (Dollars in thousands)
Commercial and agricultural$132,167  19%$134,758  20%$(2,591) -2%$140,167  20%$(8,000) -6%
Real estate:                    
Construction and development 45,227  7% 41,663  6% 3,564  9% 47,291  7% (2,064) -4%
Residential 1-4 family 85,711  13% 86,771  13% (1,060) -1% 89,091  13% (3,380) -4%
Multi-family 29,865  4% 32,920  5% (3,055) -9% 30,948  4% (1,083) -3%
Commercial real estate -- owner occupied 147,049  21% 142,297  21% 4,752  3% 142,761  21% 4,288  3%
Commercial real estate -- non owner occupied 153,865  22% 150,249  21% 3,616  2% 152,017  20% 1,848  1%
Farmland 32,370  5% 32,448  5% (78) 0% 28,876  4% 3,494  12%
Consumer 59,014  9% 62,707  9% (3,693) -6% 72,946  11% (13,932) -19%
 Gross Loans 685,268  100% 683,813  100% 1,455  0% 704,097  100% (18,829) -3%
 Less:  allowance for loan losses (8,993)   (9,017)   24    (9,049)   56   
 Less:  deferred fees (830)   (981)   151    (994)   164   
 Net loans$675,445   $673,815   $1,630   $694,054   $(18,609)  
                      
                      
Loan Concentration    
(Unaudited)    
   Dec 31,  2019 % of Risk
Based
Capital
 Sept 30,
2019
 % of Risk
Based
Capital
 Change Dec 31,
2018
 % of Risk
Based
Capital
 Change    
   (Dollars in thousands)    
Commercial and agricultural$132,167  118%$134,758  123% -5%$140,167  134% -16%    
Real estate:                    
Construction and development 45,227  40% 41,663  38% 2% 47,291  49% -9%    
Residential 1-4 family 85,711  77% 86,771  79% -2% 89,091  89% -12%    
Multi-family 29,865  27% 32,920  30% -3% 30,948  31% -4%    
Commercial real estate -- owner occupied 147,049  132% 142,297  130% 2% 142,761  143% -11%    
Commercial real estate -- non owner occupied 153,865  138% 150,249  137% 1% 152,017  137% 1%    
Farmland 32,370  29% 32,448  30% -1% 28,876  29% 0%    
Consumer 59,014  53% 62,707  57% -4% 72,946  74% -21%    
 Gross Loans$685,268   $683,813     $704,097         
Regulatory Commercial Real Estate$222,899  199%$221,191  202% -3%$225,806  212% -13%    
Total Risk Based Capital*$111,782   $109,428     $101,487         
                      
*Bank of the Pacific                    

DEPOSITS

                     
Deposits by Category
(Unaudited)
                     
  Dec 31,
2019
 % of Total Sept 30,
2019
 % of Total $
Change
 %
Change
 Dec 31,
2018
 % of Total $
Change
 %
Change
  (Dollars in thousands)
Interest-bearing demand$228,579  28%$222,412 27%$6,167  3%$191,530  24%$37,049  19%
Money market 149,510  19% 150,655 18% (1,145) -1% 162,238  20% (12,728) -8%
Savings 104,871  13% 106,284 13% (1,413) -1% 101,408  13% 3,463  3%
Time deposits (CDs) 70,668  9% 71,501 9% (833) -1% 86,188  11% (15,520) -18%
Total interest-bearing deposits 553,628  69% 550,852 67% 2,776  1% 541,364  68% 12,264  2%
Non-interest bearing demand 245,010  31% 265,238 33% (20,228) -8% 242,185  32% 2,825  1%
Total deposits$798,638  100%$816,090 100%$(17,452) -2.1%$783,549  100%$15,089  2%

The following table summarizes the capital measures of the Company and the Bank respectively, at the dates listed below.

Capital Measures
(unaudited)
 Dec 31,
2019
 Sept 30,
2019
 Change Dec 31,
2018
 Change  Well Capitalized Under Prompt Correction Action Regulations*
Pacific Financial Corporation            
Total risk-based capital ratio14.72% 14.30% 0.42 13.36% 1.36  N/A
Tier 1 risk-based capital ratio13.54% 13.13% 0.41 12.17% 1.37  N/A
Common equity tier 1 ratio11.84% 11.45% 0.39 10.47% 1.37  N/A
Leverage ratio11.17% 11.11% 0.06 10.21% 0.96  N/A
             
Tangible common equity ratio10.02% 9.66% 0.36 8.83% 1.19  N/A
             
Bank of the Pacific            
Total risk-based capital ratio14.60% 14.22% 0.38 13.30% 1.30  10.5%
Tier 1 risk-based capital ratio13.40% 13.02% 0.38 12.09% 1.31  8.5%
Common equity tier 1 ratio13.40% 13.02% 0.38 12.09% 1.31  7.0%
Leverage ratio11.07% 11.01% 0.06 10.14% 0.93  7.5%
             
*Includes Basel III 2019 Capital Conservation Buffer            

The following tables set forth information regarding average balances of interest-earning assets and interest-bearing liabilities and the resultant yields or cost, and the net interest margin on a tax equivalent basis. Loans held for sale and non-accrual loans are included in total loans.

Net Interest Margin
(Unaudited)
(Annualized, tax-equivalent basis)
                
   For the Three Months Ended,
                
   Dec 31,
2019
 Sept 30,
2019
 $
Change
 %
Change
 Dec 31,
2018
 $
Change
 %
Change
Average Balances (Dollars in thousands)
Gross loans$680,220 $688,166 $(7,946) -1%$691,064 $(10,844) -2%
Loans held for sale$16,909 $16,825 $84  0%$5,793 $11,116  192%
Investment securities$100,942 $104,236 $(3,294) -3%$119,402 $(18,460) -15%
Federal funds sold & interest bearing deposits in banks$79,827 $51,931 $27,896  54%$45,070 $34,757  77%
Total interest-earning assets$877,898 $861,158 $16,740  2%$861,329 $16,569  2%
Non-interest bearing demand deposits$257,780 $254,184 $3,596  1%$255,968 $1,812  1%
Interest bearing deposits$552,949 $541,200 $11,749  2%$545,616 $7,333  1%
Total Deposits$810,729 $795,384 $15,345  2%$801,584 $9,145  1%
Borrowings$16,619 $16,661 $(42) 0%$21,769 $(5,150) -24%
Total interest-bearing liabilities$569,568 $557,861 $11,707  2%$567,385 $2,183  0%
Total Equity$105,072 $102,715 $2,357  2%$93,560 $11,512  12%
                
   For the Three Months Ended,    
   Dec 31,
2019
 Sept 30,
2019
 Change Dec 31,
2018
 Change    
Yield on average gross loans (1) 5.30% 5.47% (0.17) 5.43% (0.13)    
Yield on average investment securities (1) 2.78% 2.80% (0.02) 2.66% 0.12     
Yield on Fed funds sold & interest bearing deposits in banks 1.72% 2.24% (0.52) 2.25% (0.53)    
Cost of average interest bearing deposits 0.42% 0.42% -  0.37% 0.05     
Cost of average borrowings 3.37% 3.60% (0.23) 3.39% (0.02)    
Cost of average total deposits and borrowings 0.35% 0.35% -  0.34% 0.01     
                
Yield on average interest-earning assets 4.64% 4.91% (0.27) 4.90% (0.26)    
Cost of average interest-bearing liabilities 0.51% 0.51% -  0.49% 0.02     
Net interest spread 4.13% 4.40% (0.27) 4.41% (0.28)    
                
Net interest margin (1) 4.31% 4.57% (0.26) 4.58% (0.27)    
                
(1) Tax-exempt income has been adjusted to a tax equivalent basis at a rate of 21%.              
                
   For the Year Ended,      
   Dec 31,
2019
 Dec 31,
2018
 $
Change
 %
Change
      
Average Balances (Dollars in thousands)      
Gross loans$689,594 $692,376 $(2,782) 0%      
Loans held for sale$12,482 $7,405 $5,077  69%      
Investment securities$109,595 $111,232 $(1,637) -1%      
Federal funds sold & interest bearing deposits in banks$40,997 $27,920 $13,077  47%      
Interest-earning assets$852,668 $838,933 $13,735  2%      
Non-interest bearing demand deposits$245,370 $249,255 $(3,885) -2%      
Interest bearing deposits$542,687 $533,541 $9,146  2%      
Total Deposits$788,057 $782,796 $5,261  1%      
Borrowings$18,542 $22,241 $(3,699) -17%      
Interest-bearing liabilities$561,229 $555,782 $5,447  1%      
Total Equity$100,435 $89,676 $10,759  12%      
                
Total Deposits excl. Brokered CDs 769,455  745,312  24,143  3.2%      
                
   For the Year Ended,        
   Dec 31,
2019
 Dec 31,
2018
 Change        
Net Interest Margin              
Yield on average gross loans (1) 5.45% 5.30% 0.15         
Yield on average investment securities (1) 2.87% 2.60% 0.27         
Yield on Fed funds sold & interest bearing deposits in banks 2.06% 2.00% 0.06         
Cost of average interest bearing deposits 0.42% 0.35% 0.07         
Cost of average borrowings 3.59